HMRC quadruples spending on private debt collectors

By May 2, 2019Uncategorized

Autopsy of a Newspaper headline

At the end of last month the main heading of this article was the heading to a piece in the pages of an internationally renowned daily UK newspaper- the one that does not quite fit the riddle “what is black and white and red all over?”-more pink if you get my meaning. The findings, by a well-regarded firm of accountants, seem to have been covered by all the leading papers utilising headlines in much the same vein.

As someone who, in his working life, has almost daily contact with HMRC, this headline rather surprised me, as in my experience, I have almost never seen evidence of private debt collectors [“PDCs”] in matters of tax. I suspect that this is because our practice is one that predominately deals with companies in financial difficulties rather than individuals with debt issues. Yes, we do very occasionally come across bailiffs acting on behalf of HMRC but these are court appointed bailiffs rather than private bailiffs.

There are 10 PCBs utilised by HMRC and their names are provided on the Government’s own website:

https://www.gov.uk/if-you-dont-pay-your-tax-bill/debt-collection-agencies

Let’s deal with the headline first. Accordingly to the article, the money spent by HMRC on PDCs had quadrupled in the past five years suggesting an increasingly “aggressive” approach to collecting unpaid tax. In 2018, HMRC spent £26.3m on PDCs up from the figure of £6.2m in 2014. What the article did not say is that spending year-on-year was in fact down to 67% of the 2017 expenditure level [£39.1m]. My further research revealed the following expenditure on PDCs by HMRC:

Year

£m

2018

26.3

2017

39.1

2016

24.1

2015

12.5

2014

6.2

2013

14.8

The aforementioned figures did allow another national daily [the one with all the spelling mistakes] in May of last year to say that “HMRC spending on debt collectors up by more than 500% in three years”. The paper went on to say that the taxman had little day-to-day control over the firms in question [I would suggest that HMRC had no day-to-day control-why have a dog and bark yourself?] and that the attitude of the PDCs towards debt collecting “could be seen as more aggressive than that of HMRC”. Well, it could and it could not-no comparative evidence was forthcoming.

So at first, I thought that my small contribution to this phenomenon would be something along the lines of Benjamin Disraeli’s “lies, damn lies and statistics” [in this case swapping the word statistics for the phrase- newspapers hyperbolic use of percentages and adjectives in headlines- yes, I agree a bit clunky] i.e. do not be taken in by extravagant headlines and think that there has been a sea change in a particular aspect of business life.

What I do thank the headline for is the fact that it made me dig a little deeper. Where had such figures come from? What tax is being chased by PDCs? Is it a good or a bad thing?

The facts come from another part of the Government’s own website:

https://www.gov.uk/government/collections/spending-over-25-000#2013

which contains, in fascinating [well I am an accountant of sorts] detail, HMRC’s departmental spending for each month of the year in respect of expenditure over £25,000- the figures go back to May 2010. By utilising the monthly Excel spreadsheets provided in the link, one can see how the taxman is indeed spending some of our tax money. The well regarded firm of accountants mentioned earlier have crunched the figures and come up with an expenditure sum for each year in respect of PDCs and an opportunity to get their name mentioned in the national press about this time of year, each year-good on them I say.

It does not take too much time to put the table of figures above into context. Let us look at the latest month published – March 2019:

Expenditure March 2019

£m

Rent for HMRC’s premises Canary Wharf [4 floors]

3.74

Information Management Services

86.44

Debt Management Payments [PDCs]

  1.86

Royal Mail

   5.60

Total HMRC expenditure for the month

186.00

Which brings us to the Tax Gap.

Several of the articles that I have read mention The Tax Gap which is the difference between the tax that should be paid to HMRC and the actual tax that has been paid. The gap is at an all-time low of 5.7% [2016/2017] or £33 billion for the year. The tax gap trend is in decline according to Government figures. From 7.3% in 2005/2006 to the latest 5.7%. Small businesses make up the largest proportion of unpaid tax by customer group at £13.7 billion. The link to HMRC’S tax gap report is below:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/715742/HMRC-measuring-tax-gaps-2018.pdf

In reality, HMRC are currently spending just over £2m a month on PDCs- the proverbial drop in the ocean when seeking to make inroads into the tax-take shortfall of £33 billion.

However, is this £2m per month even being targeted at the Tax Gap? It would appear that much of the monthly expenditure is actually be used to pursue overpayment and fraud in the Personal Tax Credit regime [which is not included in the Government’s definition of the Tax Gap].

Tax Credit debt represents approximately 4.8% of the total tax credit payments which equates to an annual figure [latest figures published 2015/2016] of £1.35 billion. Any system, such as the Tax Credit one, which determines what a person is entitled to only after a year of provisional payments is bound to carry a large proportion of over and under payments. It is HMRC’s practice to refer the majority of tax credit debts to the private PDCs.

Accordingly, I just wonder if the real story here is that HMRC spend over £25m per year chasing down debt of £1.35 billion that has largely resulted from the inefficient operation of the Government’s own Tax Credit Scheme. Or put another way

Government spends less than 2% on trying to recover debt of £1.35 Billion

And that Dear Reader brings us around full circle.